Boycott iPhones before Whoppers if tax maneuvers are upsetting

WASHINGTON (MarketWatch) — There’s murmurings of an anti-Burger King boycott in response to the burger chain’s deal to buy Tim Hortons and redomicile to Canada.

Sen. Sherrod Brown on Monday said consumers should choose Wendy’s or White Castle — shock, shock, both companies in his state, Ohio — over Burger King
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because of this deal. Similar comments have been seen on social-media sites.

It’s the senator’s prerogative to eat burgers wherever he wants, but on an outrage level, this deal really should not prompt boycotts.

As first noted in a sharp Bloomberg View column delving into the details, the bottom line is that the combined company will still be paying their Whopper-sized corporate tax rate on the sales from its 7,000-plus U.S. restaurants.

What the firm won’t be paying is the U.S. tax rate on the 3,630 Tim Hortons
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stores in Canada. Instead, it will be paying 15%, the Canadian rate, which seems fair. And the new company will also be paying the local tax rate for the nearly 7,000 Burger Kings in Brazil, China, Russia, what have you, again instead of the 35% U.S. rate. (This analysis ignores U.S. state and Canadian provincial taxes for simplicity.)

It’s not widely known, but the U.S. taxes corporate income whether earned domestically or internationally. True, the U.S. will let companies deduct the taxes they have already paid overseas from this bill, and the U.S. waits for the cash to be repatriated before collecting (hence, why Cisco and Apple keep so much cash overseas). But the net effect is for U.S. companies to pay more tax than foreign rivals for the same overseas operations.

The combined Burger King-Tim Hortons will generate just 20% of its revenue in the U.S. and 67% of it from Canada. So, a company making most of its money from Canada is going to be domiciled in Canada. It’s a loss for the U.S. Treasury — America will no longer collect taxes on overseas Burger Kings — but it doesn’t sound like grounds for a boycott.

What’s far more outrageous is the practice of Apple
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and others to license intellectual property created in the U.S. to a low-tax jurisdiction, like Ireland, and license it back. In fact, in Apple’s case, the company has even negotiated a special tax rate with the authorities in Dublin, according to a U.S. Senate investigation.

In fairness, Apple CEO Tim Cook acquitted himself fairly well in Washington and pointed out his company was the single-largest corporate taxpayer in the U.S. What Apple does is not rare or unique.

And the more productive exercise would be both to consume Whoppers and iPhones to one’s desires and fix a faulty tax code.

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